The flexibility of investing in a fund lets you diversify your portfolio. Doing so helps investors mitigate their risk of owning one investment in the event of an economic downturn.

The sponsor is usually highly motivated to achieve profit goals because funds are typically structured to return profit to investors, regardless of whether any profit has been made for the fund. Funds typically have a goal to keep all parties aligned as best as possible. As such, investors enjoy a more regular return on their investment.

Unlike other investments, investing in a real estate fund typically assures the investor of receiving their initial profits (carried interest). While no fund (or investment) can guarantee a return, most funds offer a preferred return in addition to the pro rata share of the fund’s overall net profits. 

An absolute return is the amount of profit the fund has earned. It includes returns beyond the preferred return. And funds that perform well will offer absolute returns higher than the preferred return. Investors should ensure that the structure of the fund is built to mitigate investment risk. They should not base it only on past performance.

If an investor invests in a single asset, they have placed all of their opportunities in that one property. However, if that investor invested their funds in a pooled investment, they’ve created a multitude of opportunities for themselves. Because there are different types of funds that focus on different geographic locations and asset classes, the opportunity is endless. It’s up to the investor to choose which fund they want to invest in. However pooled funds help investors create a diversified portfolio without having to invest directly into individual assets.

When investing individually, an investor may not have professional guidance to benefit from. Investing in a fund, the investor gets this additional benefit. Having a sponsor who does this professionally can help an investor to ensure the fund is qualified and deployed appropriately. Not only that, an investor can expect to receive professional reports from a professional. They will be available to answer questions about the fund to show they are willing to work to be successful.